TMI Blog2023 (1) TMI 257X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that the power of CLB is narrow and can only consider questions of rectification. If a petition seeks an adjudication under the garb of rectification, then the CLB would not have jurisdiction, and it would be duty-bound to re-direct the parties to approach the relevant forum. The Court also held that the words sufficient cause cannot be interpreted in a manner which would enlarge the scope of the provision. The company petition under Section 111A of the 1956 Act for a declaration that the acquisition of shares by the Respondents as null and void is misconceived. The Tribunal should have directed the Appellant to seek such a declaration before the appropriate forum. The Appellate Tribunal is, therefore, justified in allowing the appeal and setting aside the order of the Tribunal. Appropriate forum for enquiry and adjudication of violations of the SEBI Regulations - HELD THAT:- In the exercise of its adjudicatory powers under Section 15-I, the SEBI has the power to appoint officers for holding an inquiry, give a reasonable opportunity to the person concerned and determine if there is any transgression of the rules prescribed. The Board has the power to impose penalties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and therefore, the Appellate Tribunal was correct in setting aside the judgment dated 05.07.2017. Appeal dismissed. - CIVIL APPEAL No. 2030 of 2019 - - - Dated:- 4-1-2023 - [ JUSTICE A. S. BOPANNA ] And [ PAMIDIGHANTAM SRI NARASIMHA ] , JJ. For the Appellant : Mr. Soumya Ray Chowdhury, Adv. Mr. Mahesh Agarwal, Adv. Mr. Gaurav Gupta, Adv.Mr. Himanshu Satija, Adv. Mr. Nishant Rao, Adv. Mr. Rajesh Kumar, Adv. Mr. E.C. Agrawala, AOR For the Respondent : Mr. S.S. Shroff, AOR JUDGMENT PAMIDIGHANTAM SRI NARASIMHA, J. 1. The short question for our consideration in this appeal relates to the scope of the rectificatory jurisdiction of the National Company Law Tribunal under Section 59 of the Companies Act, 2013 hereinafter referred to as the 2013 Act . In this context, we are called upon to determine the appropriate forum for adjudication and determination of violations of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations, 1997 hereinafter referred to as the SEBI (SAST) Regulations , and Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 hereinafter referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent Nos. 4-6 are close relatives of Respondent Nos. 2-3. 4. It is the contention of the Appellant that sometime in August 2003, Respondent No. 2 came up with a proposal for a business tie-up between the Appellant and Respondent No. 1. The Appellant is said to have rejected the proposal. It is alleged by the Appellant that after this rejection, the Respondents started acquiring shares of the Appellant from the open market with a view to eliminate competition and strengthen its own dominant position in the relevant market. As of 18.01.2004, the Respondents collectively held just under 5% of the Appellant s total paid-up share capital. 5. On 19.01.2004, Respondent No. 1 acquired 600 equity shares of the Appellant and this resulted in the aggregate shareholding of the Respondents crossing 5% of the total paid-up share capital of the Appellant, thereby triggering Regulation 7(1) Regulation 7(1) Any acquirer, who acquires shares or voting rights which (taken together with shares or voting rights, if any, held by him) would entitle him to more than five per cent or ten per cent or fourteen per cent or fifty four per cent or seventy four per cent shares or voting rights in a compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 111A of the 1956 Act: 7. It is in the above referred factual background that on 19.07.2004, the Appellant filed a petition before the Company Law Board hereinafter referred to as the CLB under Section 111A of the 1956 Act praying for rectification of its register by deleting the name of the Respondents as the owner of shares which are over and above the 5% threshold. As of the date of filing of the Section 111A petition, the Respondents collectively held around 8.22% of the Appellant s paid-up share capital. 8. Upon receiving notice of the aforesaid petition, Respondent No. 1, on 16.08.2004, issued an intimation to the Appellant as mandated under Regulation 13 of the SEBI (PIT) Regulations. Two days later, on 18.08.2004, Respondent No. 1 allegedly sold a few shares of the Appellant and brought down its individual shareholding to 4.91%. This fact is contested, as the Appellant claims that Respondent No. 1 never reduced its shareholding. On 24.08.2004, Respondent No. 1 also wrote to the SEBI that its individual shareholding in the Appellant had crossed 5% on 27.05.2004 and that there was a delay in disclosing this to the Appellant. SEBI was informed that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing their rights as to the shares acquired by them in the Petitioner Company in excess of 5% the company is hereby authorised to buy back the shares that the Respondents hold in excess of 5% of the shareholding in the Company at the rate which was prevailing on the date of presentation of the Petition or market value, whichever is higher. The Respondents are directed to hand over the share certificates and share transfer forms within 30 days of the order to the Company and in response to that the Petitioner will be liable to pay the buyback price which shall be the value of shares which was prevailing on the date of presentation of the petition or market value whichever is higher. It is clear that the power exercised by the Company Law Board and the powers exercised by the SEBI fall in different and distinct jurisdictional fields. Therefore, the present order shall not preclude the jurisdiction of SEBI as an adjudicating authority for deciding on the violation of SEBI Regulations as have been laid down in the present petition. Judgment of the Appellate Tribunal: 12. The Respondents herein carried the matter to the Appellate Tribunal in appeal. The limited question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the SEBI (PIT) Regulations are not applicable to Respondent Nos. 2-6 as their individual shareholding never crossed 5%. It was only Respondent No. 1 whose shareholding crossed 5%, which it inadvertently failed to disclose; (v) the SEBI (PIT) Regulations are not applicable to Respondent Nos. 2-6 as there is no concept of persons acting in concert under the said Regulations; (vi) under section 111A (3), the Tribunal has no power to annul the transfer or to direct the buy-back of the shares. 15. Having heard both sides, we formulate the following questions for our consideration. What is the scope and ambit of Section 111A of the 1956 Act, as amended by Section 59 of the 2013 Act, to rectify the register of members? Which is the appropriate forum for adjudication and determination of violations and consequent actions under the SEBI (SAST) Regulations 1997 and the SEBI (PIT) Regulations 1992? Re: Interpretation and scope of Section 111A of the 1956 Act as replaced by Section 59 of the 2013 Act: 16. The reliefs claimed by the Appellant in its Company Petition under Section 111A of the 1956 Act is as under: - (a) Declaration that the acquisition of shares of and in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Register. 111A. Rectification of register on transfer. (1) In this section, unless the context otherwise requires, company means a company other than a company referred to in sub- section (14) of section 111 of this Act. (2) Subject to the provisions of this section, the shares or debentures and any interest therein of a company shall be freely transferable: [Provided that if a company without sufficient cause refuses to register transfer of shares within two months from the date on which the instrument of transfer or the intimation of transfer, as the case may be, is delivered to the company, the transferee may appeal to the [Tribunal] and it shall direct such company to register the transfer of share]. (3) The [Tribunal] may, on an application made by a depository, company, participant or investor or the Securities and Exchange Board of India, if the transfer of shares or debentures is in contravention of any of the provisions of the Securities and Exchange Board of India Act, 1992 (15 of 1992) or regulations made thereunder or the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istered by the company within a period of ten days of the receipt of the order or direct rectification of the records of the depository or the register and in the latter case, direct the company to pay damages, if any, sustained by the party aggrieved. (3) The provisions of this section shall not restrict the right of a holder of securities, to transfer such securities and any person acquiring such securities shall be entitled to voting rights unless the voting rights have been suspended by an order of the Tribunal. (4) Where the transfer of securities is in contravention of any of the provisions of the Securities Contracts (Regulation) Act, 1956, (42 of 1956), the Securities and Exchange Board of India Act, 1992 (15 of 1992) or this Act or any other law for the time being in force, the Tribunal may, on an application made by the depository, company, depository participant, the holder of the securities or the Securities and Exchange Board, direct any company or a depository to set right the contravention and rectify its register or records concerned. (5) [***] 1. Omitted by the Companies (Amendment) Act, 2020 w.e.f. 21.12.2020[S.O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g under it. Thus in other words, the court under it has discretion to find whether the dispute raised is really for rectification or is of such a nature that unless decided first it would not come within the purview of rectification. The word rectification itself connotes some error which has crept in requiring correction. Error would only mean everything as required under the law has been done yet by some mistake the name is either omitted or wrongly recorded in the Register of the company. 27. In other words, in order to qualify for rectification, every procedure as prescribed under the Companies Act before recording the name in the register of the company has to be stated to have been complied with by the applicant . The Court has to examine on the facts of each case whether an application is for rectification or something else. So field or peripheral jurisdiction of the court under it would be what comes under rectification, not projected claims under the garb of rectification. So far exercising of power for rectification within its field there could be no doubt the Court as referred under Section 155 read with Section 2 (11) and Section 10, it is the Company Court alone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision. 21. The decision in Ammonia was followed by this Court even after the deletion of Section 155 and insertion of Section 111A. This Court, in Standard Chartered Bank v. Andhra Bank Financial Services Ltd. Ors. (2006) 6 SCC 94 and Jai Mahal Hotels (P) Ltd. v. Devraj Singh Ors. (2016) 1 SCC 423, held that even though Section 111(7) of the 1956 Act Section 111(7) - On any application under this section, the Tribunal - (a) may decide any question relating to the title of any person who is a party to the application to have his name entered in, or omitted from, the register; (b) generally, may decide any question which it is necessary or expedient to decide in connection with the application for rectification seemingly enlarges the power of the CLB, the power of rectification continues to remain summary in nature and if any seriously disputed questions arise, the Company Court should relegate the parties to a forum which is more appropriate for investigation and adjudication of such disputed questions. 22. In Kesha Appliances (P) Ltd. Ors. v. Royal Holdings Services Ltd. Ors. (2006) 1 Bom CR 545, the High Court of Bombay has held that: 41. .....The contentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company not to give an effect to the transfer if they are found to be in contrary to the Take Over Regulation. 23. Zandu Pharmaceutical Works Ltd. v. Devkumarvaidya Ors. (2009) 89 CLA 65, is another instance where it has been held that in a case of violation of the SEBI Regulations, the CLB cannot exercise rectificatory jurisdiction unless and until the SEBI, in the very first instance, decides if there has been a violation or not. The CLB held that: 11. Most of the allegations made by the petitioner are yet to be investigated and to be crystallised/confirmed as violations of the law. The allegations of violation of Takeover Code and Insider Trading is to be decided by the SEBI and similarly the allegations of investment beyond the limit under section 372A of the Act and acquisition of shares creating thereby a dominant undertaking under section 108A of the Act are to be investigated and crystallised/confirmed as violations by the Central Government. Unless it is confirmed as a violation of law, the CLB has no power to issue orders for rectification of register of members and further this Bench has no power to declare these allegations as violations of law. 24. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty to safeguard the interest of the consumers and the real stakeholders of the sector. Telecom Regulatory Authority of India Section 3, The Telecom Regulatory Authority of India Act, 1997 , Insurance Regulatory and Development Authority Section 3, The Insurance Regulatory and Development Authority of India Act, 1999 , Insolvency and Bankruptcy Board of India Section 188, The Insolvency and Bankruptcy Code, 2016 , Central Section 76, The Electricity Act, 2003 and State Section 82, The Electricity Act, 2003 Electricity Regulatory Commissions and Airport Economic Regulatory Authority Section 3, The Airports Economic Regulatory Authority of India Act, 2008 , are some of the regulators established under their respective statutes. The SEBI Section 3, Securities and Exchange Board of India Act, 1992 is one such regulator. 29. SEBI was established in 1988 to protect the interest of investors in securities and to promote the development of, and to regulate, the securities market. This Court had the occasion to consider the regulatory role of the SEBI in maintaining an orderly and stable securities market so as to protect the interests of investors B.S.E Brok ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ia) and 11(2)(ib) of the SEBI Act. Where the Board has a reasonable ground to believe that a transaction in the securities market is going to take place in a manner detrimental to the interests of the stakeholders or that any intermediary has violated the provisions of the Act, it may investigate into the matter under Section 11(C) of the SEBI Act. In other words, being the real-time security market regulator, the Board is entitled to keep a watch, predict and even act before a violation occurs. It is in this context, that the SEBI (SAST) Regulations and the SEBI (PIT) Regulations, with which we are concerned in this case, are to be understood. 33. The SEBI (PIT) Regulation prohibits dealing, communicating etc., on matters relating to insider trading. Even if there is a suspicion about the transgression of the prohibition, the Board has the power to inquire (Regulation 4A) and come to a prime facie conclusion about the need to investigate (Regulation 5). Chapter III of the said Regulations provides for the entire procedure to be followed in the inquiry process. This includes procedural safeguards to be afforded to the insider (Regulation 6), submission of the report by the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uty to protect the consumers has real time control over the sector, thus, realizing the purpose of their constitution. 37. The position with respect to the SEBI (SAST) Regulations is similar to that of the SEBI (PIT) Regulations. Regulation 7 of Chapter III obligates the acquirer of more than 5% shares in a company to disclose the same to the company and the stock exchange. This is the prohibition, and non-disclosure is punitive. Chapter V deals with investigation and action by the Board, which includes the power of the Board to appoint an investigating officer (Regulation 38), the issuance of show-cause notice to the acquirer (Regulation 39), the obligation of the investigating authority to submit a report at the earliest (Regulation 41), the duty to supply the report to the acquirer and give him an opportunity of hearing before passing penal orders (Regulation 42) and lastly, the powers of the Board to take action/pass directions under Chapter VI-A and Section 24 of the SEBI Act (Regulation 44). It is significant to note that Regulation 45 provides for penalties for non-compliance with the said Regulations. The liability will be in terms of the Regulations and the SEBI Act. He ..... X X X X Extracts X X X X X X X X Extracts X X X X
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